How does net working capital affect the NPV of a 4year proje

How does net working capital affect the NPV of a 4-year project if working capital is expected to increase by $12,000 and the project has a 8.3% discount rate? Answer to 2 decimal places, for example 100.12.

Solution

This increase in net working capital would cause an initial outflow of $12000 which would recovered at the end of the 4 years.

Hence Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=$12000/1.083^4

=$12000*0.726919256

=$8723.03

NPV=Present value of inflows-Present value of outflows

=$8723.03-$12000

=($3276.97)(Approx)(Negative).